An auto insurance policy is a contract, legally-binding, that outlines the scope of coverage for insureds and anyone involved in a crash with them. Courts give the language of these policies great weight in determining whether coverage is available, and if so, how much. Insurance companies are given much latitude in defining coverage amounts, exclusions and special conditions.
keys1However, there are situations in which the language in these policies fails to meet the strict statutory standards set forth for the insurance industry, and therefore the policy is void. For example, if there is ambiguity in a portion of the policy, the courts will decide in favor of the plaintiff. Another is an over-broad expansion of an allowable exclusion. In other cases, courts have found policies to be void when they run counter to public policy.

These cases require the aid of an experienced attorney. One such case recently was recently before the California Court of Appeal, Fourth Appellate District, Division Three. In Mercury Casualty v. Chu, the question was whether the insurer improperly denied coverage to a student passenger/roommate of the driver on the basis of a “resident exclusion” that is common in auto policies. The court found that the exclusion as applied was over-broad and contrary to public policy.

Our Fort Myers car accident lawyers note the case stemmed from a 2008 accident involving a group of college students. According to court records, the insured (also the at-fault driver) was driving, his roommate in the passenger seat, when he turned left directly in front of another driver. The passenger suffered injury.

The at-fault driver’s policy covered his vehicle, and allowed for bodily injury limits of $15,000 per person and $30,000 per crash. The policy contained (as many do) a resident exclusion, which the insurance company argued barred coverage to the roommate because he resided in the same location as the driver.

The passenger filed a lawsuit against both drivers. The insurer informed the at-fault driver it would provide defense, but still asserted the roommate’s injuries were not covered under the policy. It also advised it would seek reimbursement of attorney fees and costs.

At trial, a jury awarded more than $333,000 to the injured passenger.

Soon after, the insurance company filed a complaint requesting declaratory relief with a court order affirming it was valid in denying coverage to the passenger, and seeking reimbursement for legal costs. The insured cross-claimed for bad faith, negligence and breach of contract, while the passenger filed a request to join that cross-claim.

The two testified prior to trial that they were born in Vietnam and had moved to the U.S. separately. They did not know each other well before becoming roommates for two years at a home owned by the driver’s aunt and uncle. They then shared another residence together with four other students, but largely kept to their own circle of friends.

The trial court granted summary judgment to the insurer, indicating the policy clearly and unambiguously excluded coverage to the roommate as a “resident of the same household.”

The insurer then sought reimbursement for $133,000 in legal fees.

Upon appeal, the appellate court noted that while resident restrictions had generally been upheld, with some exceptions, the purpose was to insulate insurers from collusive assertions of liability. Here, the insurer sought approval to extend this exclusion to non-relative residents. The court found no authority on which it based this exclusion of a large group of people solely on their residency status. Further, the court found no legal basis to assume that insurers face the same risk of fraudulent lawsuits when people simply inhabit the same dwelling. College roommates in particular are often complete strangers when they move in together.

Therefore, the interpretation of the insurer was overly-broad and also contrary to public policy.

Because the insurer must no provide coverage, it is not entitled to reimbursement for defense costs, which it was obligated to provide per the terms of the policy for covered accidents.

If you have been a victim of a Fort Myers traffic accident, call Chalik & Chalik at (954) 476-1000 or 1 (800) 873-9040.

Additional Resources:

Mercury Casualty v. Chu, Sept. 24, 2014, California Court of Appeal, Fourth Appellate District, Division Three

More Blog Entries:

Williams v. GEICO – Auto Insurance Step-Down Provisions Challenged, Sept. 6, 2014, Fort Myers Car Accident Lawyer Blog